1. Why not have your say? To take part in forum conversations Sign In or Join. It’s fast, free and easy!
  2. Golden Rule: Be nice, respectful and avoid self-promotion.
    We pride ourselves on being the friendliest forums around. Check out our full guidelines and tips for new players.

    Login problems? Please update your forum URL bookmarks or saved credentials from HTTP to HTTPS (we have upgraded security)

Best structure for my side projects

Discussion in 'Starting your journey' started by otnimus, Nov 5, 2020.

  1. otnimus

    otnimus Member

    Messages:
    4
    Likes Received:
    2
    Trophy Points:
    3
    Hi all, I am so happy to discover this forum and hoping we can learn from each other.

    I've been doing side projects in software/apps development and on the top of my salary I have between 10K - 20K annual income from my side projects. Currently I just add this to my tax return and got taxed as part of my income tax.

    I am looking at the best structure that makes it the most tax effective to run my side project. Anyone has suggestion the best route I should take? Would I be better if I register a company? What are my options?

    Thank you.
  2. Paul - FS Concierge

    Paul - FS Concierge Administrator Staff Member

    Messages:
    2,994
    Likes Received:
    977
    Trophy Points:
    113
    Hi And Welcome to Flying Solo @otnimus .

    It is great to have you!

    Thank you for joining our community and posting

    Your choices can have long term tax consequences so my advice is to see an Accountant.

    You should also ask about Trusts as well as companies.

    Cheers
    Paul
  3. otnimus

    otnimus Member

    Messages:
    4
    Likes Received:
    2
    Trophy Points:
    3
    Hi @Paul - FS Concierge thank you for taking time to respond to my question.

    What kind of consultant that is best suited for this type of inquiry? Not necessarily the one who helps us with tax return I suppose?

    TBH it is sometimes overwhelming when trying to find an accountant who is good with reasonable rate and would be able to provide advice rather than just give us list of options.
  4. Paul - FS Concierge

    Paul - FS Concierge Administrator Staff Member

    Messages:
    2,994
    Likes Received:
    977
    Trophy Points:
    113
    Any Accountant that provides advice to small businesses.

    In your discussions let them know that you are looking for a sharp price taking account of the nature of a side hustle.

    Ask also about initial and about on-going costs of operating the different entities.

    Cheers
  5. bb1

    bb1 Renowned Member

    Messages:
    4,289
    Likes Received:
    2,264
    Trophy Points:
    143
    So many problems with this advise. You don't want to pay a sharp price could result in crap service, you are better to pay a good price, and get good advise.

    10 to 20K on side projects, firstly thats not a side hustle thats serious income, and deserves a quality accountant.

    Get this wrong and it could end up costing you thousands, see a good accountant, not a cheap and nasty accountant. Why do you assume that the one who does your tax return is not the right one, have you asked them. Just think about it, they are the ones that should know your business inside and out, and if they don't then you have the wrong one.

    At the end of the day, giving advise is giving you a list of options, but as long as the list of options gives you the pro's and con's that is fine.
  6. Paul - FS Concierge

    Paul - FS Concierge Administrator Staff Member

    Messages:
    2,994
    Likes Received:
    977
    Trophy Points:
    113
    To add context to my post above.

    First of all, @bb1 is entitled to his opinion.

    Kudos to him.

    The advise around what structure to use should be quality - no questions.

    Completing returns is easier than ever today and will continue to become closer to a commodity than a service in future.

    This lowers the value of accounting services in line with market forces that affect them.

    I had an Accountant charge me $4400 for a Trust Return and a 2 x personal returns. The company registration was a few hundred at the time.

    My total income at that time was $45K and my business was failing. My Accountant advised me to keep the company structure, even on my income.

    I concluded that loss of Accounting fees were at issue.

    Next. My last Accountant (who bought the firm I was with) created a loan structure for my company without advising me or giving me options. This resulted in among other things, the Accountant charging way more fees. My new Accountant will try and un-pick this and I will have to come up with un-budgeted money to remit the ATO.

    New Accountants I consulted suggested Accounting Fees may have been the agenda.

    OP has a side business producing 10-20K. ANY non-incompetent Accountant dealing with small business regularly will be able to give decent advice in my opinion so choosing one at a lower price point is prudent, again, in my opinion.
  7. JacquiPryor

    JacquiPryor Renowned Member

    Messages:
    2,033
    Likes Received:
    1,550
    Trophy Points:
    143
    A quick add on to the above comments... side jobs seeing 10-20k per year would likely be deemed a business by the ATO. If you're adding the revenue to your tax return it suggests that's your profit amount? I would think - and definitely speak to an accountant to confirm - this would fall into a business category not hobby, such that you perhaps should have at least had an ABN as a sole trader before now... which may have meant being able to claim other business expenses I would think?

    Only an accountant that's familiar with all of your income (business and wages), expenses, personal assets etc can really advise best structure for tax effectiveness. Pty Ltd company tax may be less than your personal marginal tax rate on wages so there could be a tax saving BUT it's also more costly to run a company structure than sole trader in terms of registrations/annual returns etc so it has to be balanced against the tax saving.
    James Millar is a member here and knows his stuff. Can't speak to his fees but would be well worth a chat in this situation - his website is at https://360partners.com.au/
    otnimus and Paul - FS Concierge like this.
  8. otnimus

    otnimus Member

    Messages:
    4
    Likes Received:
    2
    Trophy Points:
    3
    Hi all, thank you for taking time to respond. I really appreciate your feedback.

    @bb1 I didn't assume that a tax (return) accountant wouldn't be the one who could help me with this. I was just not sure if there are other type of accountant who is specialised in this kind of thing. When I see popup counter at shopping centre who offer to help with tax return I was just not sure if I could talk to them regarding business structure.

    I have used accountant in the past but I noticed that I didn't get any added value compared to just prepare my tax return through eTax. So in the last few years I have done it myself online. I might need an accountant who will proactively try to understand my situation by asking me questions since I would not know what is ir/relevant for my tax return. But even then my situation usually doesn't change from year to year.

    What reasonable fee that I should expect to pay for an accountant to help me establishing a structure to run my side hustle?

    @JacquiPryor thank you for recommending 360 partners. I'll get in touch with them.

    So it seems it is highly recommended to talk to an accountant to find out what structure is the best for my situation instead of just registering for a company myself.

    Actually, is there anyone could recommend a book that discusses all different type of business entities and their own pros and cons? Thank you.
    JacquiPryor likes this.
  9. bengtan

    bengtan Member

    Messages:
    11
    Likes Received:
    3
    Trophy Points:
    3
    Here's some counter advice.

    Get a book on managing your own (small) business in Australia and read it. They will often have an introductory section on business structures (ie. sole proprietor vs company vs trust etc.). Knowing some of this background information will help you decide how to find out more.

    Many years ago, I read 'Managing a Small Business in Australia' by John English (which looks like it got replaced by 'How to Organise & Operate a Small Business in Australia', still by the same author).

    As an example, you could try finding this in your local library or bookstore and browsing the books adjacent to it on the shelf.

    (I dunno if this is still the most relevant book, or maybe there are other more recently-published books.)

    Hope this helps!
    Paul - FS Concierge and otnimus like this.
  10. otnimus

    otnimus Member

    Messages:
    4
    Likes Received:
    2
    Trophy Points:
    3
    Thanks @bengtan for your recommendation.
    bengtan likes this.
  11. jayen

    jayen Member

    Messages:
    16
    Likes Received:
    8
    Trophy Points:
    3
    i am not an accountant, but my understanding is that a company will NOT save you any money in taxes, even if the company tax rate is lower than your marginal rate.

    https://www.ato.gov.au/Business/Personal-services-income/
    • You can receive PSI even if you're not a sole trader. If you're producing PSI through a company, partnership or trust and the PSI rules apply, the income will be treated as your individual income for tax purposes.
    Paul - FS Concierge likes this.
  12. KarenC1972

    KarenC1972 Member

    Messages:
    4
    Likes Received:
    2
    Trophy Points:
    3
    For what it's worth, my side business is a Pty Ltd company and that structure works very well for me. It makes around 20K profit per year. I was a sole trader initially but set up the company when it started making (decent) money.

    The Pty Ltd structure allows me very good control over my personal income which I really like. That's because I can leave the profits in the company until it suits my personal tax situation. Note that my company doesn't earn personal service income (PSI), because my revenue is from the sale of products, not personal services. As I understand it, PSI negates the tax/timing benefits I enjoy.

    When I want to get my profits out of the company I can either pay myself a salary (deducting tax and paying super) or I can distribute a dividend to myself.

    The overall amount of tax that gets paid per dollar is the same, but the company structure gives me more choices about when the tax is paid. If I quit my day job next year, for example, and my personal income drops to a low tax bracket, I can pay myself a salary from the company's savings and, if it is a small salary, then my personal tax bill will be small (income also small!).

    The other benefit is that if something goes wrong with customers or products my personal assets will be (more) protected from litigation than if I were a sole trader.

    Every situation is different so my setup might not be best for you, but perhaps that helps a little.
    JacquiPryor likes this.

Share This Page